Real Estate 101: Glossary

Aalto Insights Team
  ·  
Jan 18, 2022

Real Estate 101: Glossary

Real Estate Terms to Know for Home Buyers and Sellers

1031 Exchange: 

A 1031 exchange comes from Section 1031 of the U.S. Internal Revenue Code, which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.

Adjusted Cost Basis:

The original cost plus any additional costs needed for improvement, tax, etc.

Agent: 

Real estate professional who is licensed within the state and under the supervision of a broker. Agents represent the buyer or seller interests in a real estate transaction. 

All-Inclusive Trust Deed (AITD):

Combine or “wrap” an original loan together with a second mortgage that is carried by the seller. These are sometimes called “wrap loans”.

Amenities: 

Any additions to a home or a community that are considered valuable to tenants or buyers. (Ex. Pools, play structures, tennis courts)  

Annual Percentage Rate (APR): 

The interest rate is the amount a lender charges a borrower and is a percentage of the down payment or principal. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate.  

Appurtenance: 

Real property, considered immovable or fixed to the land. Examples include in-ground swimming pools, or a shed that are all fixed to the land. This can also include acreage behind a home. 

Arranger of Credit: 

A person who arranges for the extension of consumer credit. 

Assessed Value: 

The monetary value assigned to a home or piece of property for tax purposes.

Assignment of Rents Clause: 

Denotes the terms and timelines of payments. In the event an owner stops making mortgage payments the lender is protected. 

Associate Licensee: 

A person who is licensed as a broker or real estate salesperson. 

Authorization To Sell: 

A listing contract whereby a representative is employed by a seller to secure a buyer for the property. 

Banker's Rule: 

A formula used for calculating interest on a loan based on ordinary interest and exact time which yields a slightly higher amount of interest.

Bedroom Community: 

Bedroom communities are generally composed of areas that are privately owned and developed and overwhelmingly residential. Planned neighborhoods and gated communities are likely to be the predominant real estate.

Benchmark Property: 

The standard of using formulas, and indexes to determine the financial characteristics of a property or market segment. 

Bill of Sale: 

A legally recognized document showing a record of the transaction.

Blind Offer: 

A contract written by the buyer sight unseen. In the event a buyer knows they want the property and doesn’t even need to see it they will write a “Blind Offer”. 

Bridge Loan:

A bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing. Bridge Loans are typically used when a seller needs to secure financing to purchase their new home and doesn’t want the transaction to be contingent on the sale of their old home. 

Brokerage: 

Responsible for the oversight and regulation of real estate agents. Brokerages will also handle overall compliance, paperwork, and approval of agent activities. 

Building Code: 

The set of rules that specify the standards for constructed objects such as buildings and non-building structures. Buildings must conform to the code to obtain planning permission, usually from a local council. Building Codes should be reviewed before purchasing and anytime you are considering remodels or renovations in your home. 

Buyer’s Market: 

A Buyer’s Market is when there are a greater number of available listings than there are a number of qualified buyers in the market. This is common in areas where there is an influx of new development. 

CA Article 5: 

Article 5 covers transactions in trust deeds and real property sales contracts.

CA Article 6:

A real property securities dealer within the meaning of Article 6 is any person, acting as principal or agent, who engages in the business of selling real property securities.

CA Article 7: 

Article 7, also known as the 'Mortgage Loan Broker Law' requires all loan brokers to give all borrowers the Mortgage Disclosure Statement before the borrower becomes obligated for the loan Real Property Loans [10240 - 10248.3].

Capital Gain: 

The profit from the sale of property or an investment.

Capitalization: 

The expected rate of return on an investment property.

Cash Flow: 

The term cash flow refers to the net amount of cash and cash equivalents being transferred in and out of a person's bank account(s) every month.

Caveat Emptor: 

A Latin phrase that translates to “let the buyer beware”. In real estate, it's the practice of buying a house “as-is” with full disclosure.

CC&Rs: 

Covenants, Conditions and Restrictions (CC&Rs) are rules and property limitations of a planned community neighborhood.

Certificate of Title: 

The official state, county, or municipal-issued document that identifies the owner of personal or real property.

Closing:

The final step in executing a real estate transaction. It is the step in which money and documents are transferred and signed in order to change the ownership of the property to the new buyer. The closing date is the date that ownership is officially transferred from the seller to the buyer.

Comparable Market Analysis:

An assessment of similar properties in the area that sold within the last 6 months. The CMA is used to create an assessed value and establish a list price for a home sale. 

Co-ownership: 

More than one person has an ownership interest in a piece of real estate.

Co-venture Loan: 

A joint venture in which all parties involved agree to assume the liability, risk, and rewards. 

Commercial Real Estate: 

Commercial real estate (CRE) is property that is used exclusively for business-related purposes or to provide a workspace rather than as a living space.

Community Property: 

Property owned jointly by a married couple.

Compound Interest: 

The interest on a loan or deposit that accrues on both the initial principal and the accumulated interest from previous periods.

Comparables (Comps): 

Simply put, real estate comps – or "comparables" – are comparable homes in a specific area that you are looking to buy or sell in.

Contract: 

A contract between parties for the purchase and sale, exchange, or other conveyance of real estate. Simply put, a written agreement between buyer and seller to transact real estate.

Conventional Loan: 

A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs). Conventional loans can be conforming or non-conforming.

Corner Influence: 

Corner influence is the term used to describe the impact on the value of a home because of its position directly on a corner of the street or nearby.

Counter Offer: 

A counter offer is a response given to an initial offer on a home. A counter offer indicates that the original offer was rejected and replaced with another one. The counter offer gives the original offerer three options: accept the counter offer, reject it, or make another offer. Corner influence is the term used to describe the impact on the value of a home because of its position directly on a corner of the street or nearby.

Days on Market (DOM) or Time on Market:

The number of days a home has been listed on the Multiple Listing Service (MLS). Buyers use this metric to determine how long a home has been for sale, every day a home is on the market the metric increases. In general, a low average DOM number for a city or area indicates a stronger market that can favor sellers, whereas a high average DOM can signal a weaker market that favors buyers. On Aalto, the direct real estate marketplace, DOM metrics do not exist, so you can test the sale of your home without accruing DOM.

DBA (Doing Business As): 

Any registered name that a business or individual/professional operates under that isn't its legal name. You can check the license of any real estate professional, including DBAs here.

Debt-to-Income Ratio: 

The total of all monthly debt, payments, expenses divided by gross monthly income. Often used in calculating mortgage rates and approvals.

Deed: 

A property deed is a legal document that transfers the ownership of real estate from a seller to a buyer. For a deed to be legal it must state the name of the buyer and the seller, describe the property that is being transferred, and include the signature of the party that is transferring the property.

Deed of Trust: 

A type of secured real estate transaction that some states use instead of mortgages. It is an agreement between a home buyer and a lender at the closing of a property and states that the home buyer will repay the loan and the mortgage lender will hold the legal title to the property until the loan is fully paid.

Department of Real Estate (DRE):

A state regulatory agency that safeguards and promotes public interest in all matters pertaining to real estate and real estate transactions. The DRE is responsible for reviewing and approving all salesperson and broker applications, they also handle any consumer complaints, which can be filed here.

Discount Points: 

The discount points system is commonly used by lenders to lower your interest rate in exchange paying for an upfront fee. 

Disclosures: 

Listed by the seller this includes anything they know about the property that might impact the buyer's use of the property.

Down Payment: 

A down payment is a percentage of the purchase price that you pay out of pocket for a home.

Dual Agency: 

Dual agency is when a single real estate agent represents both the buyer and the seller in a real estate transaction.

Earnest Money Deposit: 

Earnest money is the money put down prior to closing on a house to show that the buyer is serious about purchasing. It's also known as a good faith deposit.

Easement: 

An easement grants a person or entity the right to access property that's owned by someone else for a limited and specific purpose.

Easement in Gross: 

Selling rights to the land or a portion of the land without giving away full legal ownership.

Eminent Domain: 

The process by which the government can seize private property with proper compensation, but without the owner's consent in the event the property must be claimed for “a public use;” and, that "just compensation" must be provided to the property owner.

Escalation Clause: 

A section in a real estate contract that states that a prospective buyer is willing to raise their offer on a home should the seller receive a higher competing offer.

Escrow: 

Escrow is a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled, such as the fulfillment of a home purchase agreement.

Escrow Holder: 

A third party which holds an asset or funds before they are transferred from one party to another at the completion of a sale. The buyer or the buyer's real estate agent usually chooses the escrow company. The seller can agree to the buyer's selection or counter with another choice, this is negotiable.

Estate:

The total collection of assets owned including all personal property, real property, and other liquid assets.

Eviction: 

The act of expelling or removing someone, especially a tenant, from a property.

Exclusive Agency Agreement/Listing: 

Also known as a Listing Agreement, this is a contractual agreement in which the listing broker acts as the agent or as the legally recognized non-agency representative of the seller(s), and the seller(s) agrees to pay a commission to the listing broker if the property is sold through the efforts of any real estate broker.

Exclusive Buyer’s Agreement: 

Also known as a Buyer Representation Agreement, this is a contractural agreement in which the the buyer agrees to work with only the real estate agent they choose. This is in place to ensure that a buyer doesn’t work with another agent in the purchase of a home. 

Exclusive Right to Sell Listing: 

An agreement between the seller and the listing agent or broker to sell the home in exchange for a fee. This is in place to ensure that a seller doesn’t turn around and work with another agent or broker.  

Expired Listing: 

A property that did not sell by the end of the period stipulated in the listing contract between a seller and agent.

Federal Housing Administration (FHA): 

A federal agency that provides mortgage insurance to FHA-approved lenders.

Fiduciary: 

A person or organization that acts in another party’s best financial interest. Most common among trusts between trustees and beneficiaries.

Final Walkthrough: 

The last stage before the completion of a sale. This is when the buyer will walk through to ensure the home is as it was when they submitted the offer to buy. 

Finishes: 

Home finishes refer to decor - both interior and exterior — and how the home looks when construction is completed. Siding, trim, exterior paint are examples of exterior finishes. Finishes can also refer to interior elements like cabinets, molding, and fixtures. 

Floorplan: 

Or floor plan, a drawing to scale that shows the property as seen from above. It shows the relationship between rooms and spaces and the overall layout of the property. 

Gift Deed: 

A Gift Deed is a legal document that outlines the transfer of gift from donor (owner of property) to donee (receiver of gift) without any exchange of money.

Grant Deed: 

A grant deed is a legal document used to transfer ownership of real property. It is an official record that indicates a title has not already been granted to another person.

Ground Lease: 

A ground lease involves leasing land for a long-term period - typically for 50 to 99 years - to a tenant who constructs a building on the property. The ground lease defines who owns the land, and who owns the building. 

Homeowner's Association (HOA): 

An HOA is an organized group of homeowners within a particular subdivision, apartment complex, or condominium. HOAs are designed to manage common or shared property, protect owners' property values, provide services to residents, and develop a sense of community through social activities and amenities.

Home Warranty: 

A home warranty is a contract that agrees to provide a homeowner with discounted repair and replacement services over time or in the event of a major product or feature failure.

Department of Housing and Urban Development (HUD): 

The HUD provides housing and community development assistance and to make sure everyone has access to “fair and equal” housing. 

Implied Warranties: 

A term for certain assurances that are presumed to be made in the sale of real property, due to the circumstances of the sale. 

In-Law Unit: 

Self-contained apartments, cottages, or small residential units. In-law units are separate from the main house and contain their own entrance. 

Institutional Lender: 

A commercial financial institution with consumer loan products. 

Inspections: 

Home inspections are examinations of a home conducted by a licensed professional to review the safety and condition of a property.  

Involuntary Lien: 

A claim or charge on the property of an individual to provide security for the payment of a debt, obligation, or duty

Landlord: 

Most commonly the owner of rental property. 

Lease:

A legally binding arrangement that outlines the terms and timelines for a tenant to pay the owner for use of a property. 

Lease to Own/Purchase: 

It is the shortened name for Lease with Option to Purchase Contract and allows a tenant or renter the option to purchase the property.

Listing: 

Refers to the listing agreement that is made between a principal and an agent to conduct the sale of a home. The listing can all refer to the marketing of a property such as advertisements and other marketable materials. 

Listing Agreement: 

The agreement that represents the right of a real estate agent or broker to handle the sale of real property and to receive a fee or commission for services.

List Price: 

The amount of money that a seller is asking for their home (also known as asking price). 

Loan Officer: 

A professional who will help you make sound financial decisions and obtain a mortgage loan.

Loan Origination Fee: 

An upfront fee charged by a lender to process a new loan application.

Long-Term Capital Gain: 

The gain (or loss) from the sale of a qualifying investment that has been owned for longer than 12 months at the time of sale.

Manufactured Housing: 

Prefabricated or pre-built homes that can be placed on a piece of land. 

Market Price: 

What a qualified buyer will pay for a property and what the seller will accept for it.

Market Value: 

The value or price of a home as determined professionals and consumers in a free, fair, open marketplace. 

Median Home Price: 

Median price is the middle point for real estate prices in a given area or specific timeline. Not to be confused with the average price, the median price is the price in the very middle of a data set. 

Minimum Property Requirements: 

A requirement in place from the Federal Housing Administration stating that a mortgage loan must be secured for a property that is livable, soundly built, and suitably located as to the site and neighborhood. If the property does not meet the standards, the FHA may require repairs before providing funding.

Mortgage Broker: 

Someone who acts as an intermediary between lenders and consumers. Mortgage Brokers will shop and compare loans and other products from multiple financial institutions so consumers can have choices. 

New Development/New Construction: 

Denotes new construction of a structure or home instead of the renovation or remodeling of an existing structure. Often refers to new condominium buildings.

Off-Market Real Estate: 

Off-market listings are properties for sale, but they aren't listed on multiple listing services. Aalto, the direct real estate marketplace, has off-market listings that are not listed on the MLS or any other site.

Offer: 

A conditional proposal made by a buyer or seller. Offers only become legally binding when the terms are accepted. 

Open House/Showing:

A scheduled time when a home is to be made available for viewing by potential buyers. 

Open Listing: 

A property that multiple brokers have the option to market and sell to earn commission on the sale of the home.

Origination Fees: 

The upfront fee charged by a lender to process a new loan application. 

Parcel: 

A defined piece of real estate, usually resulting from the division of a large area of land.

Planned Development: 

A regulatory process used to outline such factors as housing, recreation, commercial centers, and industrial parks, all within one contained development or subdivision of land.

Pre-Approval: 

Pre-Approval is a preliminary evaluation of a potential borrower by a lender to determine whether they can be given a pre-qualification offer. 

Pre-Qualification: 

Pre-qualification is a preliminary step in the home buying process when you're getting an estimate of what you might be able to borrow, based on information provided about personal finances, as well as a credit check.

Primary Residence: 

The property inhabited for the majority of a calendar year by an owner, renter, or tenant. 

Principal:

The initial amount (down payment) paid on a loan.

Property Manager: 

A person or company placed in charge of the handlings and oversight of a property in exchange for a fee. Property managers are used when the property owner does not want to or is unable to manage the property on their own.  

Public Report:

Public reports are disclosure documents in accordance with the title and history of a home or property.  

Purchase Agreement: 

A legally binding agreement that governs the purchase and sale of a property from one party to another. 

Qualifying Ratio: 

Most common qualifying ratios are debt-to-income ratios and these are used by mortgage lenders to qualify a potential buyer for a home loan. 

Re-sale: 

Properties that are not new or newly built and are sold by the home owner.  

Real Estate: 

Property consisting of land and the buildings on it, along with its natural resources. 

Real Property: 

Referring to land and/or fixed property (structures on the property). 

Realtor: 

A person who acts as an agent for the sale and purchase of buildings and land. Realtor is a trademarked term and all Realtors are accredited by the National Association of Realtors (NAR)

Realtor Commission:

Payments made directly to real estate brokers for services rendered in the sale or purchase of property. A commission is usually a percentage of the property's selling price. Sometimes commissions can also be a flat fee, but they are normally negotiable. 

RESPA: 

Real Estate Settlement Procedures Act. RESPA aims to reduce high settlement costs and requires disclosures to homebuyers and sellers. RESPA also prohibits abusive practices in the real estate settlement process.

Seasonality: 

Seasonality is defined as the tendency for the market and the number of listings available along with the number of sales to correspond to seasonal events such as holidays or a school calendar. For example, many more transactions are concluded in the Spring compared to the end of the Summer.

Seasoned Loan: 

Seasoned loans are loans that are more than one year old from the first payment date.

Seller's Market: 

When the number of buyers is greater than the inventory of available listings it is considered a seller’s market. Sellers tend to have the advantage during a seller’s market. 

Site Plan/Sitemap: 

A site plan is an architectural document that provides a layout of a building site, including details of the structure and placements of utilities. 

Sold Price/Sales Price: 

The actual price a buyer pays for the property. The sales price of the home.

Square Footage: 

The area of the living spaces contained within the walls of the structure on the property. 

Stock Cooperative: 

Most commonly referred to as a Co-Op this is an apartment development in which an undivided interest in the land is coupled with the right of exclusive occupancy of an apartment in the development. 

Subdivision: 

An area of real estate or large parcel of land that is subdivided into individual lots. 

Sublease: 

A sublease is the re-renting of property by an existing tenant to a new third party for a portion of the tenant's existing lease contract.

Tenancy: 

The right of a tenant to temporarily occupy or possess  real estate that belongs to a landlord under a lease or rental agreement.

Tenant: 

The person who occupies land or property rented from a landlord or property owner.

Tenant-Occupied: 

Tenant occupied means that the property owner is not living in the unit and it has been rented to a Tenant. 

The MLS (Multiple Listing Service): 

A database used by real estate brokers to provide data about properties for sale. Homes listed on the MLS will show days on market, purchase price history, and property information.

Timeshare: 

A shared ownership model of vacation real estate in which multiple purchasers own allotments of usage at different times, typically in one-week increments, in the same property. Timeshares are most commonly used for vacation properties. 

Title: 

Title refers to a document that lists the legal owner of a piece of property.

Townhouse/Townhome: 

Townhomes are a style of multi-floor homes that share one to two walls with adjacent properties but have their own entrances. 

Township: 

Six-by-six mile square area of land designated by the intersection of range lines and township lines in the rectangular survey system.

Transfer Tax: 

A tax charged by a state or local government to complete a sale of property from one owner to another.

Trust: 

A trust is any arrangement in which one party (Trustees) holds property or assets for another party's benefit (beneficiary). 

Truth in Lending Act (TILA): 

The Truth in Lending Act (TILA) protects consumers against inaccurate and unfair credit billing and credit card practices. Truth in Lending requires lenders to provide consumers with loan cost information and allows consumers to shop and compare different types of loans.

Underwriting: 

The process by which your lender verifies your income, assets, debt and property details in order to issue final approval for your loan.

Upfront Costs: 

The initial sum of money owed in a home purchase or business venture; a down payment.

Zoning: 

Zoning refers to municipal or local laws and/or regulations that govern how real property can and cannot be used in certain geographic areas.

If you have any specific questions or terms you'd like us to define, please share them with us at hello@aalto.com. We’d love to hear from you, and we’re here to help!

Aalto is a real estate broker licensed by the State of California, License #02062727 and abides by Equal Housing Opportunity laws. This article has been prepared solely for information purposes only. The information herein is based on information generally available to the public and/or from sources believed to be reliable. No representation or warranty can be given with respect to the accuracy of the information. Aalto disclaims any and all liability relating to this article.

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